In the midst of economic uncertainty, the Central Bank of Nigeria (CBN) froze a whopping N430 billion in bank deposits for failing to lend 65% of total deposits to the real sector. The desire of local deposit money banks for loans has been influenced by a bad macroeconomic environment, with inflation increasing and the naira weak.
Banks are assessing the effects of tight economic conditions on default risk as problem loans increase. According to Fitch Ratings, certain Nigerian institutions are seeing stage two loans expand quicker than expected.
The problem was exacerbated by the naira’s depreciation, which compelled corporations to record substantial foreign exchange losses on their accounts. According to data from the Nigerian Exchange, first-half results disclosures were tainted by negative surprises impacts of revaluation losses on companies’ bottom lines across sectors.
According to sources, banks’ clients in the industrial sector are having difficulty obtaining currency, mirroring the scenario in other sectors such as consumer goods, retail, and commerce.
Despite the huge negative caused by the increased cash reserves ratio, liquidity in the banking system remained robust. According to FMDQ Exchange statistics, this kept short-term interest rates in the single digits.
The overnight rate fell by three basis points to 1.7% at the end of last week. Analysts noted that the low interbank rate was maintained by the preceding week’s solid system liquidity, as well as this week’s N10.00 billion inflows from OMO maturities.
The amount that found its way into the financial system then reduced the impact of the week’s cash reserve debit of N430.43 billion) across the banking system. Accordingly, the system liquidity averaged a net long position of N479.10 billion last week versus a net long position of N804.77 billion in the previous week.
